In recent weeks, various information has been published on how the European Union intends to regulate the disruptive world of cryptocurrencies. On the one hand, the European Commission has given the green light to the regulation on a pilot scheme for market infrastructures based on decentralized registry technology (DLT).
The goal is to store traditional financial instruments on blockchain networks and develop security tokens. In my opinion, these types of initiatives are positive because they involve bringing the traditional system closer to this new technology. It would be a first step, but since it is reduced to the traditional market, current crypto products such as staking, liquidity mining, airdrops, etc. would be outside its scope. Products that are essential in the so-called Decentralized Finance (DeFi).
MICA Regulation
On the other hand, news of the MiCA (Markets in Crypto-Assets) regulation has been reported. These include the words of the President of the European Central Bank, Christine Lagarde before the European Parliament on June 20. Among other aspects, he commented that the EU cryptocurrency law, Markets in Crypto-assets (MiCA), “is not strong enough and must be further strengthened.” For this reason, the president called for a regulation of MiCA 2.0 that “covers participation and loans, DeFi and assets without an identifiable issuer (self-custody)”. He also expressly requested the EU Parliament “to regulate Bitcoin in MiCA2”. Regarding these innovations, he pointed out that some “put consumers at risk.” He also stressed that where “lack of regulation fits the fraud and completely illegitimate claims on valuations, speculation and criminal deals.” Unsurprisingly, he highlighted the danger of crypto assets and DeFi as they “have the potential to pose a real risk to financial stability”.
One of the most controversial issues looming in Europe is the absolute control of cryptocurrency transfers. Currently there is no framework that guarantees the traceability of crypto asset transfers and the identification of the real entities behind a wallet. For the Parliament, cryptocurrencies become a perfect tool for tax evasion or their use for any type of illicit activity.
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Identification of people, elimination of minimum thresholds… and the digital Euro.
That is why the exchanges will be forced to identify the people who trade on their portals, keep this information and present it to the authorities if they are claimed. In addition, when the Crypto Assets Market Regulation (MiCA) comes into force, it will be prohibited to interact with non-legal providers, defined as entities without registration or presence in any jurisdiction or with entities that operate in the EU without authorization.
Surprisingly, legislators voted on Thursday in favor of eliminating the minimum threshold of 1,000 euros. In other words, all transfers would fall within the scope of application and the portals must register and store information on all of them without regard to their amount. According to official information from the Council of the European Union, it is a great initiative given that “criminals misuse cryptocurrencies for criminal purposes”.
It also clarifies that this new, unprecedented obligation will fall on “cryptoactive service providers” who must “collect certain information about the orderer and the beneficiary of cryptoactive transfers made through their services and to give access to such information”. The reason is not control, but “better detection and blocking of possible suspicious transactions”.
Lastly, the European Central Bank is going ahead with its idea of creating the new “Digital Euro” or CBDC. The problem is that you want to use it with limits to avoid harming the bank. Something that is not completely understood. According to reports, each citizen could have only up to 4,000 euros of this asset. Another evidence that this type of currency is the opposite of cryptocurrencies, where there are no limits of this type.
